A shared-appreciation mortgage program recently begun by Bear, Stearns & Co. and a unit of Memphis’ National Commerce Bancorp reverses the industry’s usual food chain.

Typically a small operation will originate a loan and then pass it on to a bigger company, which will then send it to an even bigger one, and so on. For example, a broker working from the kitchen table will take a borrower’s application and match it with the local savings bank, which will fund and close the loan and sell it to an aggregator such as Chase or Countrywide, which will turn around and sell it to a giant investor such as Fannie Mae or Freddie Mac.

But Scott Stafford, president of the correspondent lending group at National Commerce Bank Services, said five of the top 25 lenders have signed up to sell shared-appreciation mortgages to his company, which was not even among the top 50 originators last year.

National Commerce will aggregate the loans and sell them to Bear Stearns, which intends to securitize them.

A shared-appreciation mortgage offers the borrower a lower interest rate in return for a share of the profit when the house is sold. It’s an old concept often favored by local banks and homebuilders, but it never really took off because “it was always a lot of specialized programs rather than one generic program,” said Sam Masucci, a managing director at Bear Stearns.

Bear Stearns has spent several years and millions in legal fees researching and developing a nationwide shared-appreciation mortgage. National Commerce has been studying the concept for the past year and has developed programs for 48 states, designed documents, and established relationships with vendors, such as title insurers, Mr. Stafford said.

This, he said, is why it makes more sense in this instance for the giants to sell loans to a smaller player. “If they want to offer the product tomorrow, we’ve done all the work. It will take them a year plus” to set up their own programs.

Mr. Masucci gained experience with shared-appreciation mortgages when he worked at SBC Warburg’s London office in the mid-1990s. He said Warburg began buying the loans not from any of the top U.K. lenders but from the smaller Bank of Scotland, which “could retool quickly” to offer the product.

Though National Commerce is the first lender Bear Stearns has signed up to deliver shared-appreciation loans, Bear Stearns expects to work with others. “Others can test the product out” by selling to National Commerce, Mr. Masucci said. “Once it takes off, others will want to deal with us directly.”

The shared-appreciation mortgage is likely to appeal to many borrowers because the rates are much lower than for regular mortgages, Mr. Stafford said. For example, an 80% loan-to-value shared-appreciation mortgage would be priced 150 to 200 basis points below market, he said. In an extreme case, he said, the bank recently originated a 35% loan-to-value mortgage at 4.25%, in an environment in which conventional mortgage rates are above 8%.

That may make the program appealing to mortgage banks, which that have been coping with lower volumes over the past year. “This product allows for refis in a market that is not conducive to refinances,” Mr. Stafford said.

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